From legendary short seller to god of American capital

Chapter 313 The McKinley Tariff Act That Made America Great

Chapter 313 The McKinley Tariff Act That Made America Great

As it turns out, after getting used to the hustle and bustle of New York, the excessive silence of the night actually makes it harder to fall asleep. Larry lay in bed, wide awake, thinking: "Shouldn't we add some supernatural elements to make this eerily quiet city more interesting?"

But the truth is, the mediocrity of city life doesn't allow for supernatural surprises. Larry stared at the ceiling for two hours without falling asleep, so he simply got up, used the copper pipe megaphone to ask the floor attendant for a pot of hot coffee, lit the gas lamp, and began to study his notes under the bright light, pondering how to preside over the acquisition ceremony the day after tomorrow.

Despite being constantly preoccupied with various trivial matters, Larry actually takes the acquisition of Bausch & Lomb quite seriously.

In his previous life, Larry had read books and watched TV series about private equity funds such as Carlyle and Blackstone. He also knew one thing deeply—leveraged buyouts are still despised even in later times when capital has become more sophisticated and morally bankrupt.

The most famous book that depicts these greedy, leveraged individuals is called "Barbarians at the Gate," which likens these buyers to the barbarians who ultimately destroyed the Roman Empire.

However, after its publication, the book was unexpectedly welcomed by both those who vehemently criticized the acquirer and the private equity fund.

Because the book's details are so vivid, opponents can see greed, and proponents can see the path.

Larry only had a vague understanding of the tricks of acquisition and merger, but the meaning of life is not to be omniscient and deliver a perfect answer, but to make steady progress every day without being ignorant.

For the past month, Larry had spent his spare time analyzing Goldman Sachs' detailed reports, collecting various business leads from newspapers, and classifying the stocks held by minority shareholders according to two dimensions: "easy" and "difficult".

Now, flipping through this densely filled notebook, Larry once again reviews all the previous records, especially the section on minority shareholder holdings. Based on a Goldman Sachs report, Larry has calculated the optimal acquisition premium based on their earnings expectations for Bausch & Lomb.

After reviewing his records again, Larry's confidence once more became substantial.

However, these calculations were just minor tricks—what truly gave Larry confidence was the thick stack of newspaper clippings at the back of the small notebook.

Larry flipped to the back of his notebook, where news articles, editorials, and sensational pieces excerpted from major newspapers all pointed to one keyword—the McKinley Tariff Act.

The McKinley Tariff Act, passed in 1890, was one of the highest-tax trade laws in U.S. history. After its passage, the average U.S. import tariff reached 60%.

The core logic of the bill is very simple and straightforward: foreign goods are really too cheap, so we just need to make them so expensive that nobody buys them and American factories have to produce them themselves. This will ensure that workers have food, bosses make money, and also guarantee America's greatness.

Under the McKinley Tariff Act, the United States imposes tariffs on tinplate, tinplate, glass, and chemicals, with tariffs reaching up to 60%. In a speech to the House of Commons, McKinley said that Britain and Germany drowned small American factories with cheap goods and repeatedly stressed that free trade is suicide!

This had a profound impact on the United States and European countries at the end of the 19th century.

Specifically in Rochester, Zeiss microscopes, telescopes, and camera lenses previously held a significant position in the high-end US market. After the tariffs were imposed, the price of a Zeiss microscope, which was originally $108, rose to $168, directly rendering it price-competitive. Worse still, US customers began turning to domestic alternatives, such as Bausch & Lomb from Rochester.

On the surface, Bausch & Lomb benefited. Without German competitors, orders surged.

The problem is that because Bausch & Lomb's lifeline is controlled by the Germans, it relies almost entirely on imports of high-end optical glass from Schott AG in Germany. Furthermore, tariff laws impose heavy taxes on unprocessed optical glass, which in turn causes Bausch & Lomb's raw material costs to surge by more than 30%.

The key is not just high-end products, because Bausch & Lomb had previously partnered with the German company Zeiss, so the optical glass for its ordinary products is almost entirely imported from Germany.

Bausch & Lomb is currently facing a situation where sales have increased but profits have decreased, and the company is struggling to expand production due to a shortage of raw materials.

As a result, both companies were in a very difficult situation. Zeiss couldn't enter the US market, and Bausch & Lomb couldn't produce good lenses that were cheap enough.

This scenario is remarkably similar to the relationship between a major Eastern power and a major Western power more than 100 years from now.

The script remained the same; only the actors changed into suits. This is the cycle of a hundred years.

Zeiss's decision to acquire Bausch & Lomb is based on the aforementioned considerations. If Zeiss were to continue exporting glass to Bausch & Lomb as per past practice, it would be creating a world-class competitor.

However, if Zeiss stopped supplying them, it feared that Bausch & Lomb might embolden itself and actually build a mature glass research and manufacturing system from the ground up. In that case, Bausch & Lomb would completely break away from Zeiss's supply chain control and create domestic alternatives in the United States.

Therefore, continuing to supply is dangerous, but not supplying is even more dangerous. This is the dual challenge that Zeiss is currently facing.

Zeiss is unparalleled throughout Europe. Because it is not subject to tariffs, its products sell well throughout the continent, and very few companies in Europe can rival it.

Aside from a few companies in Britain and France, what worried Zeiss most was the New World. Compared to the limited market of Europe, the vast market of the Americas was more likely to foster a large company.

According to the intelligence gathered by Henry Goldman, Zeiss's investment in Bausch & Lomb was aimed at nipping the latter in the bud.

Even if the acquired Bausch & Lomb is worthless, as long as they drag it out and destroy it, they can still maintain their leading position in the global market.

This is what Larry calls the opportune moment: under the trade war, all industrial logic and supply chains are being reshaped.

This is not the best of times, nor the worst of times, but it is an era in which new forces can be born from the cracks of chaos!

Larry spent the entire debriefing session until 4:30 a.m. the next day before finally taking a short nap on the sofa, wrapped in a blanket. He woke up again before 8 a.m.

When Larry woke up, a light drizzle was falling outside the window. He opened the window, and the cold air, carrying the smell of coal smoke and damp wood, rushed in—the city's first breath as it awoke in the morning.

After a busy night and a bellyful of coffee, Larry went to the shower room to take care of his personal needs. Then, wearing a shirt and a coat, he planned to go downstairs for breakfast.

Unfortunately, the restaurant couldn't serve breakfast because the boiler was broken. Larry had no choice but to put on his coat and head out into the street to find a breakfast shop.

It's clear that Rochester had a large German and Italian immigrant population in the past.

The streets are full of signs selling German pickles and pork knuckles, but many shop windows say they're out of stock.

Larry strolled into an American-style coffee shop that served both coffee and breakfast. The proprietress was a tall woman with brown hair, a large frame, and freckles all over her face.

"What would you like to order, sir?" The proprietress's accent was slightly stiff.

Larry glanced at the German writing on the lower half of the blackboard, smiled, and asked, "Do you have German breakfast here?"

"Yes, sir," the proprietress said with a smile, pointing to the beer barrel next to her. "Look around, which coffee shop still sells beer? In Rochester, any coffee shop that sells beer will definitely have a traditional German breakfast."

"Alright, I'll have a German breakfast then." Larry fiddled with the gold coin he had been holding while reading the night before, strolled over to a table with a red checkered tablecloth, picked up the newspaper on it, and started reading casually.

This is a copy of yesterday's New York Tribune, a newspaper distributed throughout New York State.

Larry glanced at the newspaper and saw an editorial by a Republican legislator from New York State, also about tariffs. It boiled down to one sentence: "As long as foreign goods become so expensive that nobody buys them, American factories will be rolling in money!"

Larry grinned and read on, following the line of text.

The article was very ordinary, formulaic, and lacked any originality. Interestingly, there was a news report in the bottom right corner of the coin, which read:

Due to retaliatory tariffs from European countries, Rochester's proud flour exports have faced significant obstacles. The inability to sell flour has further led to the bankruptcy of half of the workers in the entire lakeside wheat transport and flour processing industry.

Just as Larry was about to continue reading, the proprietress brought him a German breakfast.

The main dish was rye bread, but unlike in the US, the rye bread here was thick-cut and served with lard. It smelled delicious, but Larry had been drinking coffee all night and felt a bit greasy.

The side dish is cold cuts of meat, specifically two pieces of smoked ham and one piece of liver sausage.

Besides that, there was cheese and boiled eggs, plus a large piece of pickled beetroot.

Germans love strong coffee, so the proprietress brought Larry a pot. Larry waved his hand, saying he had drunk too much coffee that night, so the proprietress replaced it with a large pot of barley tea.

Larry looked at the breakfast right under his nose, smacked his lips, and felt a little regretful. German breakfasts tend to be cold, savory, and filling. But on this drizzly morning, it wasn't warm enough.

"I'd like a hot meal. What food can warm my stomach?"

"Yes, sir, here's a grilled sausage for you."

Larry nodded in agreement, and soon a fragrant, steaming hot grilled sausage was brought over.

Larry was hungry and had already eaten half of his other breakfast, but the moment the German-style grilled sausages arrived, nothing else tasted as good. He devoured the entire fragrant, meaty veal sausage in one go, his mouth greasy and his lips and teeth savoring the delicious flavor.

"Great! Great!" A hearty breakfast brought a smile to Larry's face.

The proprietress responded from afar, "This is authentic Saxon flavor, very authentic. Dr. John used to come to our house for breakfast often, when he was still in good health."

Larry turned to look at her and nodded. "That's very rare. It's my honor to be able to have a German breakfast in such an authentic breakfast shop."

Having filled his stomach, Larry flipped through the newspaper and casually asked, "Is Bausch & Lomb far from here?"

""

"Not far! Just two streets away, even closer as the crow flies—" The proprietress walked straight over, cleared the dishes, and cleaned the table before smiling at Larry and saying, "Bausch & Lomb also has many German employees, but they haven't been coming much lately. I heard they're worried about the glass."

Just then, two more men wearing top hats and suits walked in, and the proprietress quickly turned to greet them.

Larry wasn't in a hurry to go back. He drank barley tea and read the newspaper, thinking that if he had the chance, he would chat with the proprietress and ask her about Bausch & Lomb.

But just then, the guests at the next table, who had already started eating breakfast, began to talk about business.

One person said, "Zeiss said that if Bausch & Lomb cannot acquire full control, they will completely cut off the supply of Schott glass."

Another person laughed, "Ha! That's perfect. Isn't Eastman testing domestic glass? Even if the image is a bit blurry, at least we won't have to rely on the Germans."

The person who spoke earlier said, "But without barium crown glass, the microscope's resolution won't be high enough."

The other party laughed and said, "Then let's sell them to the doctors in the countryside first. Anyway, they won't be able to tell what's wrong with them."

Larry took a sip of barley tea, letting the aroma and bitterness flow through his mouth, constantly pondering the meaning behind the other person's words. They sounded like distributors from the American Midwest.

The two continued loudly complaining about how difficult business was. The man in the lead added, "Foreign goods are definitely not coming in, but American factories aren't getting rich either. They're just handing over profits to the Treasury and leaving the workers with the anxiety—"

The man's complaint was echoed by his companion, "I heard that Bausch & Lomb is also in a difficult situation. They are like an oyster caught between two iron plates. Zeiss can't get in on one side, and glass can't get in on the other. They seem safe, but they must be suffocating."

"But I heard their orders are increasing; they supplied us with 40% more lenses last quarter."

The man in the lead laughed and said mysteriously, "That's exactly why they're even more dangerous. They lose a penny for every pair of lenses they sell. They use German glass, pay a 60% tariff, and then sell it for slightly less than Zeiss—my friend, this isn't business, it's filling trenches with flesh and blood."

His companion pondered for a moment, then said, "If that's what you're saying, I've heard it too. Bausch & Lomb spent $87,000 last year just importing Schott glass. They paid $52,000 in customs duties alone."

"Yeah! They're not making money, they're working for the Treasury! Who cares? Anyway, Bausch & Lomb doesn't dare raise prices, they're afraid we'll all buy imported goods, haha."

But his joy did not infect the other party. His companion sighed softly, "Business can continue, but the prices of all kinds of materials for daily necessities are rising, and my business is also very difficult right now."

After saying this, the two fell silent, and after a while, they both sighed softly.

Hearing this, Larry felt he had gained something extra, and a smile remained on his lips ever since his lips parted from the barley tea.

Larry tossed aside the newspaper, pushed away the barley tea, stood up, and straightened his clothes.

As he approached the restaurant owner, she looked up at him with a kind smile and said, "How was your meal, sir?"

""

"Very good, I thoroughly enjoyed your German breakfast," Larry replied with a smile.

"That's 75 cents in total!" the female shop owner said with a smile.

Larry slapped the half-eagle coin he was holding on his fingers into her hand, and put his finger to his lips in a shushing gesture.

The female shopkeeper looked at the gold coins in her hand, feeling both frightened and surprised. She was about to look up and say something when she saw Larry's gesture, so she didn't make a sound.

Larry smiled and sincerely said to the proprietress, "Thank you!"